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Loans with a Guarantor - An Option For A Loan With Bad Credit Explained

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Guarantor Loans - How This Type Of Loan Works

Guarantor loans are loans that allow you to borrow a loan only because someone else is agreeing to repay it, just in case you default. This person willing to repay on your behalf is called a guarantor and would be liable for part or full loan amount, in case the principal borrower defaults.

There could be many reasons why your Creditor may require you to have a guarantor, but the most common reason is a bad credit score. So, if you default the payment, then the Creditor holds the Guarantor liable to repay the same. In this case, your guarantor plays a key role in the loan approval process and therefore such loans are called Guarantor loans.

Also, depending on your age, the Creditor may ask you to furnish a Guarantor. There could be several other reasons, but the ultimate goal remains the same — to have someone else willing to pay if the borrower doesn’t. Therefore, the guarantor vouching to repay on your behalf must be someone who is capable of and willing to repay the loan amount, in case you fail to do so.

Earlier, it was common for banks, credit agencies and even direct lenders to require borrowers to have at least one guarantor. Over time, this requirement was replaced with credit checks, which are now made mandatory by the FCA. However, despite the reliance placed on credit checks, there was a need for guarantor loans, which provide financial relief to those with poor credit scores.

Guarantor Loans | FAQs

  1. What are the advantages of a guarantor loan?
  2. What are the problems associated with guarantor loans?
  3. What are the types of guarantor loans?
  4. How do guarantor loans work?
  5. Who qualifies to be a guarantor for my loan?
  6. How soon can I get a guarantor loan?
  7. Will standing as a guarantor for someone else’s debt lower my credit score?
  8. Can I get a guarantor loan with a bad credit score?
  9. Is credit check required for a guarantor loan?
  10. Should I opt for a guarantor loan?
  11. How much can I borrow through a guarantor loan?
  12. How are guarantor loans approved?
  13. Do guarantor loan charge higher interest rates?
  14. Can guarantor loans help improve my credit score?

guarantor loans 1

What are the advantages of a guarantor loan?

If you have been denied loans due to low credit scores, then a guarantor loan could be the best solution. This type of loan can provide quick relief when your credit score has declined. Guarantor loans are a great option for those struggling with a poor credit history because while borrowing guarantor loans, your credit scores don’t matter. It's only your Guarantor’s financial details and credit scores that matter, so that minimizes the amount of scrutiny you would have to undergo.

Another advantage of a guarantor loan is that this type of loan charges lower interest rates when compared to payday loans and cash advance loans. So, if you have a bad credit score and have been in and out of high interest charging payday loans, then its time to make the right financial decisions. Don’t let your bad credit score drag you into a vicious circle of never-ending loans. Instead, consider consolidating all your payday loans, cash advance loans and other loans that charge higher APRs with a single guarantor loan.

You can do this with a guarantor loan because you can borrow bigger amounts if your guarantor is someone with a good credit score and higher repayment capability. Most importantly, guarantor loans come with lesser interest rates, which makes them a great option for those struggling to manage their finances. During such times, not having to pay the high APRs which come with payday loans and cash advance loans can be quite a relief. Other advantages include higher flexibility and fewer loan processing formalities.

What are the problems associated with guarantor loans?

The biggest problem associated with guarantor loans is to find someone willing to fulfill your obligation if you fail to do so. Once you find someone willing to do this for you, then you need to evaluate whether that person qualifies to guarantee your loan. When it comes to a Guarantor’s eligibility, there are mandatory requirements as well as lender-specific requirements. The mandatory requirements usually require the guarantor to be a UK citizen who has completed 21 years of age. Also, the guarantor must hold a UK bank account and must have a good credit score along with the ability to repay the loan, just in case the principal borrower fails to repay.

What are the types of guarantor loans and when can I borrow them?

Guarantor loans can be classified into two types — short term guarantor loans and long term guarantor loans. The short term guarantor loan is a suitable alternative for bad credit payday loans and bad credit cash advance loans. However, if you have already borrowed too many short term loans, then you may opt for a long term guarantor loan to consolidate those.

This means, you can consider borrowing a single long-term guarantor loan to pay off all other loans. However, you need to work out the interest rates and understand if consolidating your loans would be a profitable decision. As guarantor loans are advanced for a fixed term, you don’t have to worry about the interest rates piling up.

However, it is worth mentioning that short term guarantor loans require fewer formalities, while long-term guarantor loans require a more credible guarantor. This is mainly due to the difference in the borrowing limits, which is usually higher in the case of long term guarantor loans. So, whether you qualify for a long term guarantor loan depends on several factors such as your guarantor’s credit history, assets owned by the guarantor, etc…

How do guarantor loans work?

Guarantor loans are tripartite arrangements that involve a lender, a borrower, and a guarantor. This guarantor is a person willing to repay the loan on behalf of the borrower if the borrower fails to do so. So, if the borrower fails to fulfill his obligation to repay the loan amount, then the lender may recover the same from the guarantor. Until some time back, banks and other financial institutions required all borrowers to have a guarantor.

However, with time this has changed, and the financial services industry now places reliance on an individual’s credit history. That works fine while you have a good credit score, but when your credit score declines, you are forced to look for alternatives. During such times, Money Pig offers you bad credit short term loans that you may borrow. However, since these loans come with higher interest rates, our direct lenders also offer guarantor loans, which charge lower APRs.

Who qualifies to be a guarantor for my loan?

Several lenders in the UK now offer guarantor loans, which provide great relief to those overburdened with bad credit loans and the high-interest rates that come with it. This provides massive relief but requires you to find the right guarantor willing to guarantee your loan. While choosing a guarantor for your loan, you need to keep a couple of things in mind. The first one is to avoid having your spouse as your guarantor. That’s because you probably file joint tax returns with your spouse and share other assets and liabilities such as mortgages. In fact, it would be wise to avoid anyone who co-owns an asset or is financially linked to you in any manner, whatsoever.

An ideal guarantor would be someone who is a UK citizen, has completed 21 years of age, and has a UK bank account. Also, the guarantor must be fully aware of his obligation to repay in case you default and must be willing to accept this responsibility. Finally, the guarantor must have a good credit score and must understand that he would undergo a credit check, as part of the guarantor loan application process. Some direct lenders may also require your guarantor to own a home. This is not always necessary, but most direct lenders require this because it allows the guarantor to borrow more, just in case you default, and the guarantor is required to repay the loan amount.

How soon can I get a guarantor loan?

Money Pig offers guarantor loans that you can apply for through its online application process. Once your application is successfully processed, then the funds are released online. Usually, during the application process, the credit history and financial standing of your guarantor is verified. This reassures the lender that the guarantor is capable of repaying the loan amount, in case of a default. So, you need to have a guarantor that you can mention in your guarantor loan application. Your potential guarantor must be someone who is fully aware of the fact that you would be mentioning him or her in the loan application.

Will standing as a guarantor for someone else’s debt lower my credit score?

If you stand as a guarantor for someone who duly repays the loan amount, then you need not worry about your credit score. However, if the person fails to fulfill his obligation, then that could affect your credit score.

Why would someone want me to be their guarantor?

Most direct lenders advance loans based on the potential borrower’s credit history. So, there could be cases where the principal borrower’s credit history does not qualify him or her for a loan. In such cases, the direct lender may require the principal borrower to furnish a guarantor. So, in case of a default, the guarantor must be willing to repay the loan, on behalf of the principal borrower.

There is a common belief that those with bad credit scores need a guarantor to have their loans sanctioned from a direct lender. Contrary to this popular belief, there are several others that may want you to guarantee their loans. For example, a student who has no credit history but wants to borrow a loan, or a homemaker who wishes to borrow a car loan may require a guarantor. In some cases, the direct lender may ask for a guarantor due to insufficient collateral that does not cover up the loan amount.

So, if someone wants to borrow a guarantor loan, then it isn't always due to a bad credit score. In fact, it could also be someone without a credit history, like the student and the homemaker mentioned in the above example. It is also possible that someone who has just started a new job or has a lower income may want you to guarantee their loan. However, it would be wise to question the borrower as to why he wants you to stand as a guarantor. Also, ask the borrower the reason for borrowing the loan amount and how the borrower plans to spend it. Finally, it would be wise to check the borrower’s payslips to be doubly sure of his or her ability to repay the loan amount.

Can I get a guarantor loan with a bad credit score?

Yes, you can get guarantor loans with a bad credit score. In fact, most present-day guarantor loans are designed to fulfill the needs of those with bad credit. While borrowing this type of loan, the application process focuses on the credit history of the guarantor. So, even if you have a poor credit score but your guarantor is someone with a high credit score and also owns a home or any other real estate, then you should have no problems borrowing a guarantor loan.

Earlier, it was mandatory to have a guarantor but with the changing times and technology, that requirement has almost faded away. Over time, most financial institutions and direct lenders began placing reliance on credit scores, but with so many factors tanking credit scores, there had to be a way out. This is precisely when guarantor loans gained popularity. However, contrary to the popular belief, guarantor loans are not bad credit loans. In fact, it is not uncommon for fresh graduates or inexperienced persons without a credit history to borrow guarantor loans.

Is credit check required for a guarantor loan?

When it comes to guarantor loan approvals, it is your guarantor’s eligibility and credit history that matters the most. Usually, the direct lender is fully aware of the borrower’s low credit score, due to which the borrower is applying for a guarantor loan. So, for the most part, your credit score doesn’t matter but since the direct lender is under the FCA obligation to run the credit check, he may do so.

Should I opt for a guarantor loan?

If you have been experiencing financial stress due to poor credit score, or if you have never been in full-time employment and do not have a credit history, then guarantor loans may be of great help. This type of loan allows you to use the goodwill of another person, who agrees to guarantee your loan. Usually, people count on friends, relatives, and well-wishers to stand by them as guarantors.

While this is understandable, we recommend that you avoid having anyone who is financially connected to you, as your guarantor. As guarantor loans charge lower APRs than payday loans, cash advance loans, and other bad credit loans, we recommend opting for it. Also, you get a longer repayment period, which is anywhere up to 5 years and can take some of the financial burdens off your back. Plus, if you promptly repay your guarantor loan over a longer duration, then you may even improve your credit score.

 

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How much can I borrow through a guarantor loan?

You can borrow up to £10,000 through a guarantor loan, but this amount could vary depending on the credit history and assets owned by your guarantor. If your guarantor has a steady income, which is adequate to cover up for the loan, and also owns real estate, then you should have no problems qualifying for a higher loan amount, and a longer repayment period. Usually, the repayment period for guarantor loans varies between 1 and 5 years. So, depending on your repayment period, the principal amount and the interest are divided into equal monthly sums that you must promptly pay until you have cleared the entire debt. If you fail to do so, then subject to the terms and conditions mentioned in the loan agreement, the direct lender may recover the same from the guarantor.

How are guarantor loans approved?

Before you opt for guarantor loans, you need to be sure of certain things. To begin with, you need to know the exact loan amount that you wish to borrow. If you have other existing short-term liabilities, then you need to consider if consolidating them would be profitable. If yes, then add up that amount to the initial loan amount that you had earlier decided to borrow. Now you have one amount that you would be liable to repay, so with the APRs in mind, calculate how much loan amount you can repay every month. Based on that, you may decide on the repayment period.

Now you need to think of all the people who qualify to be your guarantors and have a word with them. Once you have your guarantor shortlisted, simply fill in Money Pig’s guarantor loan application. Once we offer you a no-obligation quote, you are free to accept or reject it, and we won’t ask you any questions. Also, throughout the guarantor loan approval process, we do not charge you an application fee or loan processing fee.

As your trusted intermediary, we are duty-bound to connect you to the most suitable direct lenders. These lenders would run a credit check on you and your guarantor before approving your loan amount. Once the direct lender is satisfied, then you, your guarantor and the concerned direct lender enter into a loan agreement, and the loan amount is released to your UK bank account. Throughout the process, there is no need for you or your guarantor to visit Money Pig or its direct lender. The entire guarantor loan application, processing, approval, and sanction takes place online.

Do guarantor loan charge higher interest rates?

Yes, guarantor loans are designed for those with bad credit or no credit score. As that indicates a higher risk, the APRs charged on this type of loan are usually higher. However, the APRs charged on guarantor loans are lower than the APRs charged on no guarantor bad credit loans. That’s because when you borrow a guarantor loan, the direct lender runs a credit check on you as well as your guarantor. The money is only advanced after the direct lender is confident of the guarantor’s ability to repay the loan amount. So, the risk involved in a guarantor loan is much lower compared to other bad credit loans.

Can guarantor loans help improve my credit score?

Yes, guarantor loans are advanced for a longer period than most other bad credit loans, which can be borrowed up to a maximum of 36 months. Moreover, given the high APRs, you wouldn’t want to borrow an unsecured bad credit loan for that long. However, since guarantor loans charge comparatively lesser interest rates than other bad credit loans, it makes sense to borrow this type of a loan.

However, if you wish to use a guarantor loan to improve your credit score, then we recommend that you pick one for a longer duration. Usually, Money Pig’s direct lenders allow you to borrow guarantor loans for up to 5 years. So, if you promptly repay this loan, then the direct lender reports this to the credit reference agency. That, in turn, improves your credit score, which allows you to qualify for more perks.